We study asset pricing and trading behavior in an exchange economy populated by two agents with different risk aversion. We show that the credit market plays a central role in the risk sharing between the two agents. It allows the less-risk-averse agent to borrow in order to take on levered positions in the stock and thus bear more risk. Optimal risk sharing results in the more-risk-averse agen...

Forecasting in the financial domain is undoubtedly a challenging undertaking in data mining. While the majority of previous studies in this field utilize historical market data to predict future stock returns, we explore whether there is benefit in augmenting the prediction model with supplementary domain knowledge obtained from financial news reports. To this end, we empirically evaluate how t...

I develop an analytical general-equilibrium model to explain economic sources of businesscycle pattern of aggregate stock market returns. With concave production functions and capital accumulation, a technology shock has a pro-cyclical direct effect and a counter-cyclical indirect effect on expected returns. The indirect effect, reflecting the “feedback” effect of consumers’ behavior on asset r...

This paper generalizes a recently proposed spatial autoregressive model and introduces a spatiotemporalmodel for forecasting stock returns.We support the view that stock returns are affected not only by the absolute values of factors such as firm size, book-to-market ratio and momentum but also by the relative values of factors like trading volume ranking and market capitalization ranking in ea...

The extreme volatility of stock market values has been the subject of a large body of literature. Previous research focused on the short run because of a widespread belief that in the long run the market reverts to well-established fundamentals. The authors’ research suggests this belief should be questioned. First, they show actual dividends cannot account for the secular trends of stock marke...